9911796707
TMI Blog2002 (5) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... et for the purpose of assessment by the Commissioner. 2. When the appeal filed by the assessee came up for hearing before a two Member Bench difference of opinion arose between the Members on the application of Rule 2(a) of General Rules for interpretation under First Schedule of Import Tariff to the imports made by the appellant. Learned Member Judicial took the view that the parts imported cannot be treated as complete colour television set (CTV) and, therefore the duty demand, confiscation penalty etc. were held unsustainable. On the other hand, the learned Member Technical took the view that Rule 2(a) should be applied in the present case but felt that the matter should be heard by a Larger Bench in the light of the different views taken by different Benches and also considering the importance of the issue involved. Learned Member Technical was also of the view that the issue whether the assessee is entitled to the benefit of exemption from duty in terms of Notification No. 91/89, dated 1-3-89 as amended by Notification No. 79/95-Cus., dated 31-5-95 and 36/96, dated 23-7-96 in case it is held that by applying Rule 2(a) the imported parts are considered as complete or finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the State of Haryana. On the basis of the application submitted by the appellant, DGFT granted import licence to the appellant for import of colour cathode ray tube and PCBs. 4. Appellant thereafter placed purchase orders on the foreign supplier, namely, Sony International (Singapore) Ltd., Singapore for supply of various components required for the manufacture of CTVs. It is the case of the appellant that Sony International (Singapore) Ltd. in its turn would place purchase orders for these components with their different approved vendors situated at Thailand, Taiwan, Japan, Malaysia, United Kingdom, China, Singapore etc. The part number of a particular component would indicate the vendor from whom the component has to be purchased. The components thus procured by Sony International (Singapore) Ltd. were sent to Sony India in container loads to save freight. A perusal of the copies of Bills of Entry and corresponding invoices would show that the countries of origin are different for different components. During the period from April, 1995 to January, 1997 appellants imported 94 consignments of various components of CTV. Two of the components, viz., CRT and PCB were imported und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be still be assessed to duty as complete articles provided that if all the components are assembled the incomplete or unfinished article has the essential character of the complete or finished article. Going by the nature of the components imported by the appellant it was alleged that when assembled it will have the essential character of the finished article, that is, CTV. 6. In reply to the above show cause notice, the appellants filed a detailed reply wherein they had referred to communications and discussions with different departments of Union of India regarding establishment of the manufacturing unit in India, the conditions under which permission was granted to the project, the mode of import of components and details of its manufacturing process. It was also contended that there was no violation of any provisions of the Import Policy while importing the components. Rule 2(a) has no application to the assessee s import, even if Rule 2(a) is applied, in the nature of the import made by the appellant, Rule 2(a) will not be satisfied. HSN Explanatory Notes to Rule 2(a), as it stood during the relevant period i.e. prior to March, 1997 would rule out application of Rule 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The show cause notice alleges that the imports of the components are coloured television sets in CKD or SKD conditions. It is clear from the facts of the case that this was not a case of imports in SKD or CKD conditions which always pre-supposes that the goods were first assembled and then disassembled fully or partially for more convenient transport of the goods. I would also add that this import was also not in ready to assemble sets which expression is clearly different from expression components unassembled as used in Rule 2(a). While the expression ready to assemble implies that components can be given the shape of consumer item with some efforts, the expression components unassembled presupposed a state wherein manufacturing process including working on the components may be involved before a fully finished article is brought into existence. 8. Contention raised by the assessee that the imported goods are to be assessed in the condition in which they are imported and the various consignments during the different period cannot be clubbed together were not accepted. The Commissioner also took the view that HSN Explanatory Notes are not binding for interpretation of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ril, 1995 to January, 1997 can be treated as import of complete CTV sets by applying Rule 2(a) of the Interpretative Rules and in the light of the HSN Explanatory Notes before and after the amendment in March, 1997. 10. Relevant portion of the Rules of the Interpretation of First Schedule to the Import Tariff reads as follows :- 1. The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes and, provided such Headings or Notes do not otherwise require according to the following provisions :- 2(a). Any reference in a Heading to an article shall be taken to include a reference to that article in complete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled. Relevant portion of the Explanatory Notes of HSN is as follows :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the various components at different places like Japan, Thailand, Taiwan, Malaysia, United Kingdom, China, Singapore etc. Minimum order quantities of the following parts and numbers are as indicated below :- PART No. DESCRIPTION MINIMUM ORDER QUANTITY X-4032-667-1 Heat Sink Assembly 300 1-102-074-51 Cap Ceramic 0001 MFB 1000 1-104-574-51 Cap Ceramic-4700 PFB 1600 1-424-461-11 Transformer Line Filter 320 1-459-907-22 Coil Horizontal Linearity 220 4-048-689-02 Rail R Guide 170 4-048-690-02 Rail L Guide 100 8-451-404-42 DYY25GXAS (Neck Band) 108 8-719-052-82 Diode RBV-406H-02 1200 8-759-336-30 IC TA8223K 15 The appellant further submits that it had to place orders for the minimum quantity from the vendors taking into account their inventory of a particular component and their production plan for the next quarter. The appellant submits that it is not permissible under law to combine all the imports un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as further submitted that the judgment of Supreme Court in Sharp Business Machines Pvt. v. CC, 1990 (49) E.L.T. 640 has no application to the facts of the present case where the appellant has imported components strictly in accordance with the licence issued to it and on the basis of Import Policy. 12. On the other hand learned Senior Counsel who appeared on behalf of the Revenue submitted that there is no rule that the parts or components presented unassembled as contemplated by Rule 2(a) cannot be parts imported under different Bs/E. According to the learned counsel there is no difference between a person who is importing components with the objective of manufacturing TV and a person importing parts without such project. It is further submitted that the decision of the Apex Court in Sharp Business Machines Pvt. Ltd. v. CC - 1990 (49) E.L.T. 640 (S.C.) would clearly show that there is nothing illegal in the Customs authorities combining different consignments under different Bs/E for the purpose of proper assessment. It is also the case of the Revenue that, in the light of the amendment to HSN Explanatory Notes which came in March, 1997, the contention of the assessee that compo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a complete CTV about 100 number of parts are required. Under Bill of Entry No. 112011, dated 24-11-95 the component CRT without which one could not make a complete CTV were not imported, whereas under Bill of Entry No. 10025, dated 8-1-97 only CRTs were imported. The chart would show that under certain Bills of Lading only rear cover was imported or only remote commander was imported. The above would clearly show that as mentioned earlier, and the Revenue has also no case, that any one of the Bill of Entry would cover all the required components of a complete CTV. 15. We are not impressed by the argument put forward on behalf of the Revenue that a reference to the purchase order dated 27-11-94 would show it was nothing but an order for 1500 CKD kits of CTV for Model KV-2185GE. A reference to the table shown in the show cause notice regarding description of components, required number for each set, quantity actually imported and quantity required for 1500 CTV sets would show that many of the items e.g. CAP Ceramic, Resistance, Network C, Lead Jumper, Fuse Time Lag 3 150A, Link ICICP N 20, Cord Power (with Connector), Switch Block, AC Cord, Holder, Shaft (S) Door, Eyelet, Diode, Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from India. It is not the case of the Revenue that import of the consignment covered by any of the 94 Bs/E is in contravention of law if the goods comprised therein are to be treated as parts of components. Assessments were also being made under the relevant heading or sub-heading in respect of each component as and when Bs/E were presented during the relevant period. It is in the background of the factual position, as above, we are to consider whether by applying Rule 2(a) of the Interpretative Rules the components imported are to be treated as CTV presented unassembled. 17. In the light of the authoritative pronouncement of the Apex Court, it is beyond challenge that HSN Explanatory Notes to Rule 2(a) has to be applied while considering the relevant Tariff Entry for each item. In CCE, Shillong v Woodcraft Products Ltd. - 1995 (77) E.L.T. 23 (S.C.) the contention raised by the Revenue was that the expression similar laminated wood in the Central Excise Tariff Heading 44.08 has to be examined in the light of the Explanatory Notes to HSN. Accepting the above contention the Apex Court held that in case of any doubt regarding tariff classification HSN is a safe guide for ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anatory Notes to Rule 2(a) in order to arrive at a conclusion whether the parts imported are unassembled form of final and complete article. In the present case the complete or finished article is CTV. It cannot be for a moment contended that CTV has to be presented unassembled for the convenience of packing, handling and transporting. 19. It is also explained in HSN Notes that, for the purpose of Rule 2(a), articles presented unassembled or disassembled means articles the components of which are to be assembled either by means of simple fixing devices (screws, nuts, bolts etc.) or by riveting or welding, for example, provided only simple assembly operations are involved. 20. The assembly of the components of CTV involves a complex operation and not a simple one. The affidavit filed by the Director who was in charge of the factory operations of Sony India Ltd. gives detailed account of CTV manufacturing process. It is stated therein that the whole CTV manufacturing procedure is divided into two parts (a) PWB assembly and (b) Final assembly. PWB assembly is further divided into four sections (1) Auto insertions (2) Hand mounting (3) Soldering stage and (4) Testing and Adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scrap is automatically collected in a Jar. In case of any discrepancy during the operation the buzzer is automatically activated. Thus, the output of auto insertion section is a PWB mounted with eyelet and jumper wire which is an input for Hand Mount section. Hand Mount : The Hand Mount section receives the PWB inserted with eyelet and jumpers. All the discrete components (both radial and axial) like resistors, capacitors, inductors, diodes, transistors and other bulky components are to be inserted. It is claimed that various components in tape reel form requires performing to make them usable for mounting because they are not available in such a position to be mounted directly on the PWB. Special Machines are required for performing tape reel form of component. These component leads are then cut and bend with specified pitch suitable for mounting. The above would show that as part of manufacturing process working on the components are also required. The IC's which generate heat during the TV operation are required to be fitted in heat sinks prior to insertion on the PWB to protect them from burning out. The IC s fitted on heat sinks are supplied to hand mount line as heat sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as various connections with the system and the different wave form are shown on the programmable oscilloscope. The operator can view the wave form and can adjust presets on the PWB which are meant for specific adjustments like Power line short circuit check, line voltage check. Deflection Adjustment, Channel Preset VHF and UHF, Sub-brightness Adjustment, APC (3.58 and 4.43) Adjustment, PAL III, delay and ANTI-PAL Adjustment, SECAM Adjustment, Timer AGC Adjustment, User switch function check. Remote control check and Audio Inspection. 23. The adjusted and checked PWB is transferred to Final Assembly Line. There also we find that there is an elaborate procedure taking place in CRT Docking stage, Chassis Docking stage, Rough Adjustment stage and Final Adjustment stage. At the final assembly line CTV had to go through Convergence Adjustment, Landing and Geometry Adjustment, White Balance Adjustment and Colour Balance and Separation Check. These processes are also complex and highly specialized requiring sophisticated machinery as well as qualified and trained operators. 24. The Revenue has not pleaded before us that the manufacturing process is anything other than what has been exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of remote control, pressed and punched parts and had filed B/E at Air Cargo Complex, Ahmedabad. The above imports were covered by licences. Revenue took the view that the goods imported under three consignments are to be treated together as CTV sets in SKD condition taking recourse to Rule 2(a) of General Rules for Interpretation. The Tribunal took the view that when the import Policy permitted import of components of TV sets some against licences and some under OGL the Collector had no jurisdiction to object to the clearance of the OGL item on the ground that those items if clubbed with items imported at Air Cargo Complex against licence would constitute complete TV set in SKD condition. In SAB Electronics Ltd. components of EPABX/Telephone were imported over a period of 22 months under 37 Bs/E. It was sought to be assessed as complete EPABX/Telephone system in CKD/SKD condition by invoking Rule 2(a) of the Interpretative Rules. The Revenue did not have a case that complete EPABX was brought and clearance was sought at different Customs station by splitting the consignment. The Tribunal took the view that the assessee had imported components and they are to be classified acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CTV sets were brought and clearance was sought at different Customs stations by splitting the consignments. The fact that components are brought under 94 consignments spread-over a period of two years with the intention of manufacturing complete CTV would not bring imports of such components under Rule 2(a). In this connection, it will be relevant to refer to the decision of the Apex Court in Vareli Weaves Pvt. Ltd. v. Union of India, 1996 (83) E.L.T. 255 (S.C.). The dispute in this case was whether Partially Oriented Yarn (POY) imported by the appellant should be taken to fall within Item (iv) under the head Polyester Yarn relating to POY of 75 deniers and above but below 100 deniers or within item (iii) relating to POY of 100 deniers and above but not above 750 deniers for the purpose of availing the benefit of exemption from countervailing duty. Accepting the contention raised by the appellant, the Supreme Court took the view that countervailing duty must be levied on goods in the state in which they are when they are imported. There was no warrant for the levy of countervailing duty on the basis that, subsequent to the process of texturising, POY that was imported would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olts of Jackson Type single bolt oval plate belt fasteners whose import had been totally prohibited by a notification in force at the time of import. The Collector held that the import was an attempt to evade the prohibition. Upholding the above view, the Apex Court observed as follows :- ........ We cannot accede to the position that it is the intention of the rule that importers are permitted to do indirectly what they are forbidden to do directly, and that it permits the importation separately of components which have no use other than as components of an article whose importation is prohibited, and that an importer is thereby enabled to assemble them here as a complete article though if they were assembled beyond the Customs Frontiers the importation of the assembled article into India is prohibited. 32. In Sharp Business Machines Pvt. Ltd. v. CC, 1990 (49) E.L.T. 640 (S.C.) the importer had purchased 14 fully semi-finished Plain Paper Copiers, dismantled them and imported the same in SKD/CKD condition in the guise of parts and accessories under the phased manufacturing scheme of Import Policy. Under the above Policy in order to give incentive and encouragement to the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hine during the period 4-6-90 to 22-8-90 under required licence to import components. The Collector took the view that the components which had arrived on different dates in different ports were in fact copier models of M/s. Toshiba of Japan. According to the Collector the procedure adopted by the importer in importing full machine from Japan to Singapore from where they were dismantled and shipped to India was in violation of the Import Tariff conditions. Collector took the view that by importing components which on assembly could form photocopying machine respondent had acted in violation of the Import Export Policy. A Single Judge of the Calcutta High Court held that since the importer had requisite licence covering import of components and since photocopying machines are not totally prohibited from importation, even after assembly importer did not achieve something which he could not have legally achieved. The order passed by the Collector was accordingly set aside. While affirming the above view a Division Bench of the Calcutta High Court in its judgment dated 11-3-96 (judgment was rendered by Hon ble Justice Ruma Pal) examined in detail three decisions of the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l presented for Customs clearance at the same time and no account is to be taken in that regard of the assembly technique or the complexity of the assembly method. 23. Accordingly, it should be stated in reply to the first question that an article is to be considered to be imported unassembled or disassembled where the component parts, that is the parts which may be identified as components intended to make up the finished product, are all presented for customs clearance at the same time and no account is to be taken in that regard of the assembly technique or the complexity of the assembly method. 35. We, therefore, hold that the decision of the German Court also did not support the action of the Commissioner in combining 94 consignments under 94 different Bills of Entry spread over a period from April, 1995 to January, 1997 to hold that components imported are to be considered as CTV unassembled by applying Rule 2(a) of Interpretative Rules. 36. In the light of the above view taken by us on the application of Rule 2(a) to the imports made by the appellant, we do not propose to go into the issue whether in the light of Rule (1) of Interpretative Rules it is open to the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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